Head of Russia’s Central Bank Elvira Nabiullina

MOSCOW, November 13. /TASS /. The growth of loan operations is ongoing despite the fact that the quality of banks' loan portfolio has deteriorated, the head of Russia’s Central Bank Elvira Nabiullina said on Friday.

"There is a growth of loan operations despite the fact that the quality of the bank’s loan portfolio has deteriorated. However, we can see some positive developments in this area: arrears are still growing, but this trend is dying out. In October, the share of overdue loans of non-financial corporations increased by 0.1 percentage points to 5.9%, the share of overdue retail loans grew from 8 to 8.1%,"she said.

Lending in the economy has also resumed, in January-October it amounted to 7.1%.

"Lending slowed down, and in some sectors, such as small businesses, will continue to decline. However, in recent months lending growth has resumed. In 10 months the banks increased lending to companies by 7.1%, excluding foreign exchange revaluation - 2.2%," she said.

Nabiullina has urged the financial policy which would lead to lower rates on all loans.

"It is important for us to conduct such a policy that would finally lead to reduction of interest rates on all loans. We should not only expand financing with regard to reduced rates set for certain borrowers which only slows down and narrows opportunities for reduction of rates on all credits," she said.

The Central Bank chief also pointed out that restricting access to foreign borrowing market for Russian banks leads to reduction of currency funds by $200 bln annually.

"The decline of oil prices together with restriction of the access of Russian banks to foreign borrowings leads to reduction of currency funds. According to our estimate, the flow of funds decreases by about $200 bln in annual terms," she said.

According to the official, Russia’s Central Bank sees signs of changing structure of the economy, the situation in export-oriented and import substitution-oriented industries looks more stable.

"Along with the adaptation of the balance of payments we also see signals of changing structure of the economy. There are first signs that the situation in export sectors and sectors of import substitution is becoming to look a little bit more stable."

She also said that reaching target inflation will not interfere with the economic growth.

"In making decisions on monetary policy, we always keep in mind the balance of risks for inflation and the economy. Reaching target inflation will not hinder economic growth," she said.

Nabiullina said that inflation in Russia will continue to decline at the beginning of 2016, and at the end of 2015 will amount to 12-13%.

"Inflation is slowing down; we expect it to fall to 12-13% by the end of this year. According to our forecast, inflation will continue to decline quite rapidly in the next year, moderately tight monetary policy, restrained and low demand will contribute to it," Nabiullina said.

The Russian Central Bank believes that the rise in consumer prices in Russia this year will be at 12-13%, but early next year inflation will start to decelerate sharply because of the base effect. At the beginning of 2016 the regulator expects a significant reduction in annual inflation, which, in particular, will be due to the high value of this indicator at the beginning of 2015. The Central Bank expects inflation to decrease in 2016 to 5.5-6.5%.

On gold and foreign currency reserves

Elvira Nabiullina also dweled on Russia's gold and foreign currency reserves saying building them up to $500 bln could take 5-7 years or more.

"Regarding gold and foreign currency reserves, we have the desired benchmark of $500 bln, and not in the three-year term, it could be 5-7 years and more. We believe it is necessary in terms of creating additional financial cushion for the state in the face of such external uncertainties," she said.

From May 13 to July 23 in the framework of the program of procurement of currency to the reserves the Russian Central Bank bought $10 bln.

Russia's international reserves consist of cash in foreign currency, Special Drawing Rights (SDR), reserve position in the IMF and monetary gold.

According to the Russian Central Bank, international (gold and currency) reserves of the Russian Federation for a week - from October 30 to November 6, 2015 - decreased by $3.1 bln to $366.1 bln. The Russian Central Bank aims to increase the volume of international reserves to $500 bln.

Ruble volatility does not create risks for financial stability in Russia

According to Nabiullina, the volatility of the ruble has declined since the beginning of 2015 and no longer creates risks for financial stability of the Russian economy.

"Under the influence of external negative factors high volatility of the ruble remains present. However, it has decreased since the beginning of the year and no longer creates serious risks to financial stability," Nabiullina said.

Low oil prices however still have and will have a negative impact on the Russian economy.

"The transfer of oil market to a new equilibrium with a lower level of prices has and will continue to have a negative impact on the Russian economy," she noted.

Meanwhile, the euro increased by 30 kopecks and exceeded 72 rubles on the Moscow Stock Exchange at the opening of trading on Friday. The dollar is at the level of 66.8 rubles, increasing by 0.2%. Negative trends in the commodity markets continued to exert pressure on the ruble. Thus, On November 12 the cost of the futures contracts for December delivery of Brent crude oil on London's ICE trading fell below $45 per barrel and On November 13 slightly grew by 0.16% to $44.12 per barrel.

The official warned that divergence between market expectations and raising interest rates by the US Federal Reserve may create capital outflow risks in emerging markets, including Russia

She said that this factor may lead to more volatility both this and next years.

"Speaking about the Federal Reserve policy the focus is shifting from exact date when the rate is raised to a longer term, meaning how fast the rates will be raised. Divergence between market expectations and virtual policy of the Federal Reserve regarding raising rates may create capital outflow risks in emerging markets, including Russia," Nabiullina said.

The Central Bank takes into account all those risks in its policy, the regulator’s chief said.